5 Worst Stock Trading Mistakes
Making mistakes in stock trading out of lack of knowledge, excitement, and impatience for a beginner is common. However, these costly mistakes can be avoided. Here are the 5 worst stock trading mistakes you should avoid.
1. Buying stocks without a plan
I bet you have already heard of the old saying, if you fail to plan, you plan to fail. This is actually true in trading stocks.
Buying stocks without planning is a common mistake, especially for newbies in the stock market. They usually buy stocks and hope for the stock price to increase. They hold on to their stocks when the price goes up as greed takes control, and they don’t sell their profit when they should have taken the profit and move on.
There are also some times where the price goes down, and they keep on holding on their stocks, reluctant to sell because they are still expecting that the price will go up. They start to become a bag holder, which is a term used to describe investors left holding shares of almost worthless stocks because of the decreasing value.
Experienced traders always have well-defined plans before they start buying stocks. They are aware that by having a trading plan, they will have a guide on where opportunities could exist, which stock market to invest, when to take profit, and when to cut losses.
A trading plan helps traders with their decision-making on when and how much they will trade. These plans help traders to make logical decisions in trading and create parameters of their ideal trade.
Online courses such as Stock Trading Basics: Beginners Guide To Stock Trading can help new investors be guided when it comes to trading stocks.
2. Letting unwanted emotions to take control of you
Trading is like a roller coaster; it has a lot of ups and downs. Sometimes the market price of your stock is rising or falling. The same goes with your emotions when it comes to trading. You have to deal with winning as well as losing stocks.
You should be good at mastering and managing your emotions in trading and trading psychology to become a strong trader because you won’t get far if you let too much fear or greed interfere with your trading.
Greed and fear is not a bad thing because you can use these emotions in making trading decisions; these are like a stress response or known as the fight-or-flight response. You can use greed as a motivation and use fear your warning sign to keep you from overtrading and lose money.
Controlling fear and greed, as well as the emotions and getting hold of trading psychology, will help you have better chances of surviving as a trader.
3. Putting all your eggs into one basket
Diversification is like not putting all your eggs into one basket by investing all of your money on one stock only. You should have multiple investments protect you from losing a huge chunk of money and reducing risks.
Having a portfolio that is composed of different investments from various industries, categories (i.e., technology and healthcare), location or countries, and financial instruments is a technique that will help you maximize your returns. This is because they will have different reactions to the same event. Your investments will be protected against the volatility and intense price movements. Also, when one of your investments is underperforming, another might be performing better.
The more uncorrelated your investments are, the more you will reduce your risk of losses. For example, you have invested stocks in a bus company; however, the groups of bus companies are going on an indefinite strike, which means that your portfolio will go into a drop value as the share process of bus transportation stock drops.
On the other hand, you also bought railway stocks; thus, the risk of losses on your portfolio reduces. As a matter of fact, this event may also have a positive impact on your railway stocks because it might climb as some passengers may opt to use the railway as their alternative transportation.
4. Trusting the wrong sources
Taking tips from sources such as financial news will not help you achieve your goals. There are many people who tout themselves as so-called experts and present themselves in such ways that they look educated and professional.
Do you even believe that these people are willing to share their secrets in trading stocks and share what industries or companies you should invest your money for a sure win for just $99 a month? Do you want to take stock recommendations from someone whose track record you don’t even know? These people would rather keep their secret in trading and make more money rather than wasting their time sharing their knowledge. Remember, if something seems too good to be true, it probably is (too good to be true).
It does not mean that when a person gets featured on TV that they know what they are talking about and that they are experts. What you need to do as an investor is to assess the source of information you will trust. When you find a reliable source, only rely partially on their advice and use those with your own knowledge and stock analysis to come up with your own decision in creating and sticking to your own investment plan.
5. Not continuing to gain knowledge of stocks and trading
You will incur less risk of losses when you educate yourself about the stock market and trading. Learning can help you come up with better strategies when it comes to investing. There are different ways to learn stocks and trading. One way of learning is through online courses. Here are some of the best stock trading online courses from Skill Success.
- Stock Trading: Insider Tips For Determining Market Direction
- Stock Trading Basics: Beginners Guide To Stock Trading
- How To Trade Stock Options Level 1: Start Day Trading
- Stock Trading With Candlestick Patterns: Technical Analysis
- Swing Trading 101: The Part-Time Stock Trading Masterclass
- Stock Trading: Options Trading Strategies
- The Complete Guide To Day Trading Stocks For Beginners
- Stock Trading Strategies To Minimize Risk
- Stock Market Option Trading